The Q4 earnings season, which is in its last leg, has painted an impressive picture with a large proportion of companies reporting better-than-expected earnings per share. According to our latest earnings outlook, of the 323 S&P 500 companies to have reported, 72.1% have outperformed on the bottom-line front. What is more encouraging is that the bullish run is likely to continue.
The reassuring earnings picture has come as a relief for investors who have been on the edge due to coronavirus fears. Amid coronavirus-related fears, the high proportion of earnings outperformances looks encouraging, as an earnings beat by a company generally leads to an appreciation in its stock price. Given this backdrop, investors would like to have outperformers in their respective portfolios as they strive for healthy returns.
However, the task is difficult with a deluge of companies in the market. Moreover, the complexities associated with the stock market makes it even more difficult for individual investors to select outperformers in their portfolios in the absence of guidance from “experts” in the field. These “experts” are brokers who are equipped with detailed knowledge about the space.
Brokers, irrespective of their types (sell-side, buy-side or independent), have a lot more information on a company, at their disposal, and its prospects than individual investors. To attain their objectives, they go through minute details of the publicly-available financial documents apart from attending company conference calls and other presentations.
Estimate revisions by brokers serve as important pointers regarding the price of a stock. In fact, a rating upgrade generally leads to stock-price appreciation. Similarly, the price of a stock may plummet following a rating downgrade.
The above write-up clearly suggests that by following broker actions, one can arrive at a winning portfolio of stocks. Keeping this in mind, we have designed a screen to shortlist stocks based on improving analyst recommendation and upward revisions to earnings estimates over the last four weeks.
Also, since the price/sales ratio is a strong complementary valuation metric in the presence of analyst information, it has been included. The price/sales ratio takes care of the company’s top line, making the strategy foolproof.
# (Up- Down Rating)/ Total (4 weeks) =Top #75 (This gives the list of top 75 companies that have witnessed net upgrades over the last 4 weeks).
% change in Q (1) est. (4 weeks) = Top #10 (This gives the top 10 stocks that have witnessed earnings estimate revisions over the past 4 weeks for the upcoming quarter).
We have also added the following screening parameters to ensure that the strategy is a winning one:
Price-to-Sales = Bot%10 (The lower the ratio the better, companies meeting this criteria are in bottom 10% of our universe of over 7,700 stocks with respect to this ratio).
Price greater than 5 (as a stock trading below $5 will not likely create significant interest for most of the investors).
Average Daily Volume greater than 100,000 shares over the last 20 trading days (Volume has to be significant to ensure that these are easily traded).
Market value ($ mil) = Top #3000 (This gives us stocks that are the top 3000 in terms of market capitalization).
Com/ADR/Canadian= Com (This takes out the ADR and Canadian stocks).
Here are five of the 10 stocks that made it through the screen:
Atlas Air Worldwide Holdings ((AAWW - Free Report) ): The company, currently sporting a Zacks Rank #1 (Strong Buy), is a provider of outsourced aircraft and aviation operating services.Over the past 60 days, the Zacks Consensus Estimate for the stock’s current-year earnings has moved 3.1% north. You can see the complete list of today’s Zacks #1 Rank stocks here.
AmerisourceBergen Corporation ((ABC - Free Report) ): This Zacks Rank #2 (Buy) company is one of the world’s largest pharmaceutical services companies, which focuses on providing drug distribution and related services to reduce health care costs and improve patient outcomes. The stock comes from a favorable Zacks industry (top 33%).
Murphy USA (MUSA - Free Report) , a Zacks #3 (Hold) Ranked stock, is headquartered in El Dorado, AR. The company is a leading independent retailer of motor fuel and convenience merchandise in the United States. The company's expected earnings growth rate for the current year is 7.7%, higher than the industry's projected rise of 2.8%.
Headquartered in Denton, TX, Sally Beauty Holdings (SBH - Free Report) is an international specialty retailer and distributor of professional beauty supplies. Over the last 60 days, this Zacks Rank #3 stock has seen the Zacks Consensus Estimate for the ongoing-quarter earnings being revised upward to the tune of 1.9%.
Dublin, Ireland-based Adient PLC (ADNT - Free Report) is one of the world’s largest automotive seating supplier. Adient, carrying a Zacks Rank #3, has an impressive earnings surprise history having surpassed the Zacks Consensus Estimate in three of the past four quarters. It missed estimates in the other quarter.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.